By Arie Goren
On June 09, 2014, Apple did a seven-to-one stock split. Apple explained its decision: “We want Apple stock to be more accessible to a larger number of investors.” The last split was Apple’s fourth stock split since going public. Apple’s common stock split on a 2-for-1 basis on May 15, 1987, on June 21, 2000 and also on February 18, 2005.
Since stock split does not add any real value, and the value of all Apple’s stocks after the split remains the same compared to the value of all Apple’s stocks before the split, it is interesting to find out if this move by Apple would benefit its shareholders.
As a reaction to the split, Apple’s stock rose 1.60% on the first trading day after the split; from $92.22 to $93.70, but it lost this gain in the following days to close at $92.22 on June 16.
Apple’s argument that by splitting its stock it will be more accessible to a larger number of investors might be valid because of psychological reasons. But in practice, it does not change anything. The time that brokers charged very high commissions on trading odd lots (less than the standard 100 shares for stocks) is over. Today, an investor can buy even one share paying the minimum fee.
One factor that can attract traders to a stock is the volume of trade, which should reflect the seven-to-one split, since more stocks need to be traded for the same dollar value. Traders like heavily-traded stocks, but their behavior does not affect the long-term price of the stock. The table below shows Apple’s stock price and volume before and after the split, as well as the total dollar value of the daily trade. Surprisingly the total dollar value has declined after the split.
It is interesting to see how top analysts are rating Apple’s stock the days before and after the split. TipRanks is a website that ranks experts (analysts and bloggers) according to their performance. According to TipRanks, among the analysts covering AAPL stock there are 44 analysts who have a four or five star rating, 36 of them recommend the stock, seven have a hold rating on the stock, and one analyst rates it as a sell. In general, the top analysts refer to the growth prospects of the company and do not give much importance to the stock’s split.
Top analysts covering AAPL on June 18
On June 13, BMO Capital Markets‘s analyst Keith Bachman reiterated an Outperform rating on shares of Apple (AAPL), and a $98 price target, writing that wearable tech, like an “iWatch,” could boost revenue by 3% to 6% for the company next calendar year, and add 20 cents to 40 cents per share to earnings.
On June 12, RBC Capital Markets’ analyst Amit Daryanani reiterated Apple’s stock as an Outperform, and raised price target to $100 from $96 (versus a $93.86 closing price).
Deutsche Bank’s analysts Sherri Scribner and Joakim Mahlberg have already adjusted their models to reflect the split. In a report issued on June 10, 2014, the Deutsche Bank analysts raised their iPhone estimates and expect demand to rise in second half of the 2014 fiscal year. The DB analysts believe “shares will continue to trade higher into C2H-14 as we expect new product introductions to drive upside to expectations.”
In conclusion, Apple’s seven-to-one stock split, should not affect too much the stock behavior. Of course, it might attract some unsophisticated small investors and some heavy traders, but not by a significant rate. In any case, it does not have any adverse effect.
